Strategic client portfolio management is a challenge for most Professional Services firms. As a result, professional services managers at a significant number of firms are just avoiding the topic. This is unfortunate, as it means sales teams and senior partners are pursuing potential and existing clients based solely on their own intuition rather than a systematic assessment. Firms that strategically decide on which clients are the most important for their limited sales and marketing resources have a competitive advantage when compared to spreading these resources too thin.

There are logically four types of Professional Services clients:

Strategic – those customers whose contributions to your bottom line are so significant that their loss as a client would affect your firm’s finances. It also helps if they are a prestigious firm to have as a client, offer interesting and innovative projects, and will talk to the media or analysts about your services. Also known as a partnership. These are the clients where your firm should invest dedicated marketing dollars and sales time.

Emerging – their billings are still low but they offer interesting projects that provide challenges for your services personnel. They might not be a prestigious brand name or might be media shy. These clients shouldn’t receive as much attention as the strategic clients, as they represent potential.

Core – those customers that keep your lights on. They pay their bills on time, the work is regular if not interesting or innovative, and they might give private references for your firm. Core clients are likely happy with your firm’s current level of engagement and would be baffled if you’d built a marketing campaign or customized training course just for them, and started introducing them to your other practice areas. It’s best to keep doing what you’ve been doing to date.

Transactional – everything else. All the one off deals that came in, probably towards the end of a fiscal quarter, with a client that’s never done anything with your firm since. This group of clients also likely contains clients who are a poor cultural fit for your firm. The best course of action is to disengage from them, by quietly dropping them from your mailing lists, outbound call lists, and so on. There is not enough time or sales resources to pursue this group effectively.

Those groupings look quite neat and tidy. It is tempting to think there’s a unifying formula that can be used to deterministically asses each client. However, there is a mix of quantitative data and qualitative data, which makes the analysis process quite murky. Quantitative data to consider include:

Client market cap

Total billings to date

Total transactions to date

Total percentage of overall billings in a period of time (ex. Initech provided 9.8% of your firm’s overall billings for three years)

Will they talk to the media? To analysts? To prospects? All of these are true/false data, so these are quantifiable. You could argue that private references aren’t worth nearly as much as public endorsements.

It is also notable that there is at least one exclusion. A client who has been on your books for less than a year should not be subject to this analysis process. There isn’t enough data on them, yet, and the sales team/marketing team/senior partner should have room to work on these new clients. If your firm has an extended sales cycle that exception could be extended to 18 or 24 months.

Qualitative data include:

are they a prestigious client?

are the projects at the client innovative?

are the projects challenging?

what is the client’s effect on your staff morale?

The first data point, prestige, is rather subjective and requires market context. A services firm that provides consulting services to hospitals and clinics as their primary practice area might be initially happy to land a transaction with a retail client. However, this orphan isn’t very prestigious or interesting unless the firm’s strategically decided to create a new practice area for retail clients.

The other three data points – innovation, challenge, and morale – could be collected via a Likert scale of services personnel at the end of each engagement. Other mechanisms could be used, too, such as an analysis of the Statement of Work documents for new deliverables in order to identify innovative clients.

Including the probability of future business in that analysis would presume your crystal ball’s in good working order, which is unlikely. At best, this would be a qualitative data point, but it’s not part of this working model.

This all assumes your firm has been collecting these data already. Time moves in a linear direction, and if the data do not currently exist the first step would be to begin collecting the data for a future analysis. Mark your calendar and prepare to do this after a year has passed.

The easiest clients to identify are the transactional clients, as they will have less than one billing record per year. For example, if your billings date back five years and the client has one billing record, it’s obvious they’re transactional unless that billing happened in the past year. If they only have two or three records over the past five years, they’re still in the transactional grouping. Drop them from your mailing list and ask sales to stop pursuing if they’re still trying. If they come back in the future, re-engage unless they also were a poor cultural fit.

The most difficult to identify, by comparison, are the strategic clients. A client that has represented 10% of your firm’s billings for the past five years might be strategic. What if they won’t talk to analysts, represent an unheard-of brand (or one that is not contextually relevant to your practice area) and offer hard work that is not particularly innovative? If your firm lost them as a client it would be a substantial loss, meaning a purely economic analysis would indicate they’d be strategic. It’s more likely they’re a core client, and while your firm shouldn’t disengage with them, developing new marketing campaigns and dedicating increased sales resources to a client that offers boring hard work isn’t going to help your firm in the long run.

A true strategic client would offer the right blend of a high percentage of billings, combined with innovative projects and a willingness to speak positively about your firm or relevant practice area. That’s a rare mix, and the marketing and sales dollars your firm spends towards expanding those clients should be rewarded. If the billings are low but the other indicators are positive, it’s likely they are an emerging client, and worth introducing to other practice areas or senior partners from your firm.

There’s no simplified formula for this activity. Instead, your firm should create ground rules for categorizing clients. Those rules will be different from the rules another firm would use. Following the annual categorization process, the assigned sales team/senior partner should start to identify additional opportunities at those strategic and emerging clients, and translate those to a plan to engage the clients. Provided you are consistent in the application of rules and predictable in your scheduling of this annual review process, your firm will be ahead of the competition. This process is a competitive advantage compared to those lower maturity firms that have no similar process.